The 7th Pillar – The philosophy of never-ending improvement (NEI)

HSBCOne unintended joke, often heard during the total quality ‘revolution’ of the 1980’s/90’s, was the statement – ‘Oh yeh, we did TQM some years ago’.  Another was the widespread belief that a revolution in management culture had actually taken place.

Manufacturers flocked to Toyota, to find out their secret recipe, and were made very welcome, but Toyota always knew the compounds in their formula were difficult to replicate.  So any copy was bound to be a very pale version of the Toyota Way; it usually omitted the essential, human chemistry.  Toyota had been working on that since the beginning, in 1937, so anyone who wanted to catch up had to go through the same, lengthy, evolutionary, alchemic process of learning and cultural development.  More importantly, they had to embrace a very simple, yet profound, philosophy – NEI – never be satisfied with current performance.  This is the 7th Pillar of MI and one of the key reasons we exist is to fill this gap in the organizational, maturation process.

The oft-quoted phrase ‘continuous improvement’ is now a meaningless cliché. The true NEI philosophy is relentless and requires supreme levels of employee motivation.  NEI means never-ending change and employees do not always, naturally, welcome change.  Yet if we stop and think about it for one moment, as a customer rather than as an employee, we all expect change from everyone else, every day.  We want to buy more and better goods at ever-lower prices.  We want more variety, better quality and speedier service; not just from the car industry but in every sphere of life.  The chemistry required to make these two, diamterically-opposed, perspectives into a single psychological contract, one where the employer/employee/customer/citizen are in harmony, is much more sophisticated than any MBA programme would suggest.  The NEI philosophy should bring societies together to create value; not drive them apart.

On 16th May 2013, under The Times headline ‘HSBC cuts 14,000 jobs in drive for profits’, HSBC’s CEO, Stuart Gulliver, proclaimed –

“We have transformed HSBC in the first phase of the execution of our strategy. We have announced the closure or disposal of 52 non-strategic or underperforming businesses, achieved $4 billion of annualised sustainable cost savings and generated double-digit loan growth in 15 priority markets. HSBC is now simpler, easier to manage and ready to take advantage of growth opportunities.”

His message is clear – if you want to drive profits you have to slash jobs. MI would be the first to agree that there is no reason why you should employ people who are not creating value. However we would argue that slashing jobs, per se, does not transform anything. Transformation, in NEI terms, means any cost cutting is designed to create a better, more valuable, more sustainable organization. Profit does not equal value (1st Pillar) and Mr. Gulliver does not offer any evidence here that HSBC satisfies this criterion.  This does not seem to trouble the investor community much though –

 “Mr Gulliver has won praise from investors for pruning HSBC’s sprawling operations, which, along with a big decline in bad debts, led to pre-tax profits nearly doubling to $8.4 billion in the first three months of the year.”

If I were an investor in HSBC, for the long term, I would want to know what caused the “bad debt” problem in the first place; and would want to be reassured that those causes have been dealt with for the future in the light of the “double-digit loan growth in 15 priority markets”.  I would also want to see some indicators that better people, culture, systems and processes had been clearly integrated in “ transforming (sic) the “world’s local bank” into one with “courageous integrity”.  Especially when I read in the same article how HSBC has just had to enter “into a deferred prosecution agreement with the US Department of Justice and paid a record £1.2 billion fine for money- laundering offences.”  I would also understand if the people of Argentina, who apparently “accuse HSBC of acting like swindlers”, still regard HSBC’s profit growth as the result of a lamentable, rather than an admirable, culture.

MI itself has already felt the pain of Gulliver’s transformation. As a very new organization we needed to set up our new business bank account. If you have tried to find a bank willing to offer new business accounts (especially to not-for-profit professional bodies like MI) you will be amazed just how difficult it is today. We decided to go with HSBC for several reasons, including holding existing accounts with them.  Our application went in 7 weeks ago – we are still waiting for our new account to be opened. This has little to do with due diligence and everything to do with poor processes and staff shortages.  I opened one of my own business accounts with HSBC over 10 years ago; it took just a couple of days. It feels to me, as a customer, that HSBC is regressing rather than improving; contrary to the narrow views of the investment analysts.  That’s the problem with misunderstanding the NEI philosophy, it is not about profit it is about value and connecting the value of the enterprise to the most deeply held values of your people.

Whoever thought they had learned any lessons about TQM 30 years ago needs to think again.  Whoever thinks we have learned any lessons from the ongoing, global financial crisis needs to think again. We still seem to have a banking and investment culture that does not invest in people and has made no serious attempt to develop a new psychological contract between those who create value and those who control it.  NEI is a Pillar; without it the whole edifice of the global financial system will remain shaky.

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